Does any landlord still use QBI deduction if the rental service hours are less than 250 in 2019?

[manbeing]

I am wondering if anyone is still using 20% QBI deduction on the rental income if the rental service hours are less than 250 (safe harbor requirement) in 2019?

Will section 162 be good enough to guarantee a rental real estate is a trade/business?

[ColeenD3 · Accepted solution]

Yes. To qualify for QBI for rentals you do not have to meet SH requirements. Meeting Sec. 162 requires will suffice. You are the only one who can determine this qualification. To clarify, 250 hours are NOT part of Sec. 162 requirements.

.02 Trade or business. Section 199A(d) defines a qualified trade or business as any trade or business other than a specified service trade or business (SSTB) or a trade or business of performing services as an employee.

 Section 1.199A-1(b)(14) defines trade or business for purposes of section 199A as a trade or business under section 162 other than the trade or business of performing services as an employee.

In addition, § 1.199A-1(b)(14) provides that rental or licensing of tangible or intangible property (rental activity) that does not rise to the level of a section 162 trade or business is nevertheless treated as a trade or business for purposes of section 199A, if the property is rented or licensed to a trade or business conducted by the individual or a relevant pass-through entity (RPE) which is commonly controlled under § 1.199A-4.

[TangledMess]

I understood your clear answer, but when I clicked,”I elect to use safe harbor or this property…”, TurboTax supplies info that says it means I attest that all of the following are true…including “at least 250 hours of rental services were performed with respect to this activity”.    I want to believe your answer!  Is the TurboTax auto-supplied info wrong with respect to rental properties?

[Carl]

Just my two cents:

If you own three or less long term residential rental properties, it is rare (but not impossible) to meet the qualifications for QBI under any statute. I myself have three rentals and don't come anywhere even close; even if I aggregate all three properties into a single activity.

[Anonymous_]

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@TangledMess wrote:

I want to believe your answer!  Is the TurboTax auto-supplied info wrong with respect to rental properties?

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TurboTax is "auto-supplied" with the requirements to meet the Safe Harbor (which, as was mentioned, are not statutory).

[Anonymous]

Under the proposed safe harbor, a rental real estate enterprise may be treated
as a trade or business for purposes of section 199A if at least 250 hours of services are
performed each taxable year with respect to the enterprise. This includes services
performed by owners, employees, and independent contractors and time spent on
maintenance, repairs, collection of rent, payment of expenses, provision of services to
tenants, and efforts to rent the property. Hours spent by any person with respect to the
owner’s capacity as an investor, such as arranging financing, procuring property,
reviewing financial statements or reports on operations, planning, managing, or
constructing long-term capital improvements, and traveling to and from the real estate
are not considered to be hours of service with respect to the enterprise. The proposed
safe harbor also would require that separate books and records and separate bank
accounts are maintained for the rental real estate enterprise.

This safe-harbor election, if you meet its terms, means that the IRS can't challenge the  QBI deduction for those rental activities.   if you don't meet the 250 hours, that doesn't mean your rental activities don't qualify for the QBI. 

here's a link to IRS final ruling on safe harbor

https://www.irs.gov/newsroom/irs-finalizes-safe-harbor-to-allow-rental-real-estate-to-qualify-as-a-b...

here are the regs. start on page 15.  you'll note the regs are wishy-washy on what is a trade or business.

https://www.irs.gov/pub/irs-drop/td-reg-107892-18.pdf

basically, if you don't meet the safe-harbor tests you are on your own for determining whether your rental activities are a trade or business.